Theme 2 Flashcards
explain economic grotwh
measures the rate the GDP of a. country changes over a year
explain the difference between real and nominal
real takes into account inflation whereas nominal doesn’t
explain the difference between total and per capita
total is the total GDP of everyone in the UK whereas per capita is per person
explain gross national product
the total market value of the final goods and services produced by a nations economy during a specific period of time
explain gross national income
the total income earned by a country’s people and businesses even if it was earned outside the country
explain inflation
the general rise in prices
explain deflation
the general fall in prices
explain disinflation
the general rise in prices but at a slower rate than before.
explain demand pull inflation
as there is more demand for the product the price rises
explain cost push inflation
Firms push the cost of production onto the consumer
explain growth of money supply
an increase in the. supply of money lowers interest rates which generates more investment and puts more money in the hands of the consumers so increases spending
explain the effect of inflation on consumers
as prices are higher they can no longer buy as much with their money than before
explain the impact of inflation on firms
they receive less sales for products as they’re more expensive so less profit
explain the effect of inflation on the government
they have to pay more subsidies and benefits so are worse off
explain the claimant count
measures people who are eligible to claim benefits in the UK
explain benefits of claimant count
up to date + useful
easy to understand
cheap to access
explain drawbacks of the claimant count
misses out those who are unemployed
not broken down by gender, ethnicity
not used in Europe
explain the ILO survey
a survey of 60,000 people across a society and counts those who are without any kind of job in the 4 weeks and are able to start within the next 2 weeks
explain benefits of the ILO survey
used in Europe
wider criteria
measures students + retirees
explain drawbacks of the ILO survey
can be out of date
surveys can be inaccurate
explain employment
the number actively working in the UK and is contributing to. the economy
explain unemployment
when someone is willing and able to work but doesn’t have a job
explain under-employment
when someone has a job but doesn’t work as many hours as they could ( part time job )
explain inactivity
when someone doesn’t have a job and aren’t looking to find a new job
explain structural unemployment
long-lasting unemployment that comes about due to shifts in an economy
explain frictional unemployment
occurs with voluntary employment transitions within an economy
explain seasonal unemployment
occurs when people are unemployed at particular times of the year when demand for labour is lower than usual
explain demand deficiency
occurs when their isn’t enough demand for goods and services in the economy leading to reduction in production and a corresponding reduction in employment
explain cyclical unemployment
occurs when people are unemployed at different times of the year
explain real wage inflexibility
occurs when the minimum wage set causes employees wages to be higher than what would be determined by the market forces of supply and demand
effects of migration on employment
they can fill in jobs that are available in the economy
effects of migration on unemployment
they could take jobs that unemployed people in the UK could do
explain effects of unemployment on. consumers
less money to spend on in the economy
explain effects of unemployment on firms
less workers to produce products
explain effects of unemployment on workers
they have to do more jobs which could lead to having to work overtime and cause exhaustion
explain effects of unemployment on the government
they have to spend more money on subsidies and welfare payments instead of healthcare and education
explain the balance of payments
it measures all international economic transactions between the UK and its trading partners
explain current account deficit
a sign that a country is borrowing more money from other countries than it is lending to other countries
explain current account surplus
a sign that a country is lending more money to countries than it is borrowing from countries
what is the aggregate demand equation
consumption (65%) + investment (25%) + government spending (15%) - (exports+imports) (5%)
understand disposable income and its influence on consumer spending
disposable income is a person money you’re given before tax reductions. if people have more of it then they would spend more of it on the economy
understand wealth and its influence on consumer spending
wealth is the total value of all your assets. if wealth increases then their will be more spending (wealth effect)
understand inflation and its influence on consumer spending
inflation is the general rise in prices. if inflation is higher then it means prices are higher so their will be less spending
understand rate of interest and its influence on consumer spending
rate of interest is the amount you pay back on a loan. if the rate of interest is higher then their will be less spending
understand availability of credit and its influence on spending
availability of credit is the amount you can borrow from a bank. iff it is higher their will be more consumer spending
explain gross investment
the total expenditure made for buying capital goods over a period of time without accounting for depreciation.
explain net investment.
the total amount of money a company spends on capital assets minus the cost of the depreciation of those assets
explain depreciation
the drop in value of an asset
explain investment
spending on capital goods such as plant and equipment and new buildings to produce more consumer goods in the future
how does rate of interest influence investment
the lower the rate the greater amount of investment in a business
how does the accelerator theory influence investment
where investment expenditure increases at a faster rate. when demand or income increases
how does the cost of the investment influence investment in a business
the cheaper it is the more investment there is
how does technological change influence investment
if theirs an improvement in technology their will be more investment because they want the most up to date technology
how does confidence influence the amount of investment
the more confidence in a business the more investment their will be
how doe risk influence investment
the more risk the less investment
explain capital spending
spending on new public infrastructure
explain current spending
on providing public services
explain transfer payments
child benefits
explain exchange rates
the value of one currency compared to another
explain the multiplier effect
an initial change in aggregate demand can have a much greater final impact on the level of equilibrium national income
explain aggregate supply
the total output in the economy and the amount firms are willing to supply at a given price
explain short run aggregate supply
where one factor of production is fixed - less than 4 to 6 months
explain long run aggregate supply
where all factors of production are variable - more than 4 to 6 months
explain reasons for shifts in a supply curve.
improvements in technology
changes in relative productivity
changes in education and skills
changes in government regulations
competition policy
changes in costs of production
explain the circular flow of income
demonstrates how money moves from producers to households and back again in an endless loop
explain debt
the total amount of government borrowing
explain inequality
the number of people below the minimum level. of income
what are the 3 multiplier equations
1/1-MPC or 1/MPS or 1/MPW
explain factors that could cause economic growth
increase in capital goods
increase in labour force
new technology.
human capital
explain actual growth
the growth that the economy actually experiences
explain potential growth
the growth. the economy could’ve experienced if all resources were fully utilised
explain the trade cycle
shows how economic growth can fluctuate in deferent phases
explain the characteristics of a boom
higher GDP
lower unemployment
higher inflation rate
rising prices
explain the characteristics of a recession
lower GDP
higher unemployment
lower inflation rate
cheaper prices
explain the benefits of economic growth on consumers.
enables theme to consume more goods and enjoy better living standards
explain the drawbacks of economic growth on consumers
higher prices for consumers
explain the benefits of economic growth on firms
people have more money so buy more so they have greater demand for products so they create more profit
explain the drawbacks of economic growth on firms
productivity can decrease so their average costs rise
explain benefits of economic growth on the government
have to pay less subsidies and welfare payments so can spend it elsewhere
explain drawbacks of economic growth on. the government
impact of inflation
explain low unemployment
in the UK their are few people looking for jobs, meaning most are filled and less skill shortages
explain low and stable rate of inflation
inflation is around 2% so prices aren’t too high but are just right for consumers
explain fiscal policy
the use of government spending and taxation to influence the economy
explain monetary policy
looks to influence the money supply flowing around the circular flow of income
what are the two monetary policy instruments
interest rates
quantitative easing
real rate of interest
credit availability
what are the fiscal policy instruments
government spending
taxation
explain progressive taxes
rate. of tax rises as income rises
explain proportional taxes
marginal rate of tax is constant leading to a constant average rate of tax
explain regressive taxes
the rate of tax paid falls as income falls
what are the components of loose/expansionary fiscal policy
decrease tax
increase government spending
what. are the components of tight fiscal policy
increase tax
decrease government spending
explain discretionary fiscal changes
deliberate changes in taxation and government spending
evaluate fiscal policy
recognition lags - time it takes to recognise a need for changes in gov. spending and taxation
imperfect information - key data on the economy is often delayed
response lags - time it takes to respond
explain automatic stabilisers
changes in tax revenues and spending as the economy moves through the trade cycle
explain quantitative easing
increase the supply of money into the banking systems designed to encourage commercial banks to lend at cheaper interest rates
its used to stimulate aggregate demand when interest rates have fallen to historically low levels
explain advantages of quantitative easing
it is another method when others don’t work
it lowers interest rates
it increases cash
cheaper mortgage. payments so more disposable income
banks have more money so can lend at cheaper rate
higher business and consumer confidence
avoids deflation
explain disadvantages of quantitative easing
widens income inequality
uncertain time lags
increases house prices
thew Bank of England is a major holder of the government debt
economy becomes dependant on cheap money
low consumer confidence
high loan costs for some borrowers
explain the liquidity trap
when interest rates are very low, any further decreases in the rate will have minimal or no affect on aggregate demand
explain the Phillips curve
an economic theory that inflation and unemployment have a stable and inverse relationship
explain what a supply side policy is
measures governments take to increase the availability of affordability of goods and services
explain deregulation of labour markets
where the government reduces your employment rights and it makes it easier to have a flexible workforce
explain the principal agent
where there’s a conflict in priorities between the owner of an asset and the person to whom control of the asset has been delegated to
